The diamond industry currently produces US$13 billion worth of rough diamonds each year, leading to the employment of 10 million people globally from mining to retailing. 70% of rough diamonds are sold for industrial purposes with the remaining 30% “gem quality” being distributed to experts for cutting, polishing and jewellery manufacturing. The global jewellery market has increased three-fold in the last 25 years and is currently worth US$72 each year. Jewellery diamonds are unjustifiably expensive given that they are not actually scarce. The DeBeers cartel is singularly responsible for the price being so high as a result of restricting supply and aiming to increase demand. This paper will begin by describing the evolution of the DeBeers involvement in the evolution of the diamond industry.
Historically diamonds were extremely scarce, found only in the river beds of India and the jungles of Brazil , and as such were highly prized by nobility around the world. In 1870, large reserves were found in South Africa, and with that the idea of them becoming more widely available was borne. Production levels of individual miners were restricted by their lack of equipment so local business men aided them by renting them costly mining equipment. One such businessman, Cecil Rhodes, began purchasing claims to the production of the diamond mines. By 1887 the company he set up, DeBeers, owned the rights to all the mines in South Africa; “DeBeers were initially able to develop their complete control in South Africa because: 1) The government supported colour bar that allowed discrimination between white and non-white workers - offering labour employment advantages; and 2) A virtual free market for acquiring and registering claims.” DeBeers also took control of all distribution channels allowing them to regulate supply levels and dictate the price of the rough diamonds produced in South Africa.
Upon the discovery of other diamond reserves globally, DeBeers set up a subsidiary called the Central Selling Organisation (CSO), responsible for buying the production for all mines worldwide then selling the produce to dealers in return for a percentage fee (10 – 20 %) from producers. The CSO was able to maintain illusion of scarcity by deciding the quantity of diamonds to be supplied to the world market and in turn, allowing individual producers to produce a certain percentage of that amount. The CSO then sold batches of rough diamonds to selected dealers at their exclusive sightings. The CSO were able to dictate inflated prices to dealers, as if dealers tried to negotiate on price, they were not invited the subsequent sightings. From the late 1800’s the CSO controlled the sale of 80% of the world’s diamonds. That figure settled at around 70% towards the 1990’s.2 Through operating their cartel without interruption for over a century the DeBeers were able to fix the price of diamonds at extortionate and unjustified prices and in doing so amassed a large fortune.
It wasn’t all plain sailing for DeBeers however, from the mid 1960’s various producers of rough diamonds, most notably Russia, challenged the stability Cartel. Israel, Zaire, Angola and Australia all departed from the terms they had agreed with the CSO, and began selling their diamonds directly to the world market. The CSO reacted swiftly by manipulating the market so that prices fell sharply for long enough so that the dissenting countries were impacted financially, resulting in all with the exception of Australia...